Plea to end inflation bill unfairness

A SINGLE measure of inflation is needed to end the unfairness of using different methods that see some people penalised by higher bills, a Lords committee warned yesterday.

Students and rail passengers are among those losing out due to an error in how one key measure is calculated.

The row involves the CPI (consumer price index), which in December stood at 2.1 per cent and the RPI (retail price index) which is currently 2.7 per cent.

The ONS must correct the mistake or risk being in breach of its duties to safeguard the quality of official statistics, the committee warned.

It said its refusal to do so was “untenable”, with the flaw in the RPI creating clear “winners and losers”. It is estimated that the error – which has artificially increased RPI – has boosted inflation-linked government bonds by around £1billion a year in interest.

But it is costing commuters and students thousands as RPI is used to calculate annual increases in rail fares and student loan pricing.

Peers also called on the Government to agree on a single measure to prevent “index-shopping” – where it cherry picks the one that suits it best.

Lord Forsyth said: “When the Government gives money to people it is generally opting to adjust payments for inflation using the CPI. But when it takes money from people it is generally opting to use the RPI, which has been around one per cent higher than CPI in recent years. This simply is not fair.”

However, a shift to CPI would cut £350 a year from the wage of an average full-time worker, said Unison.

And the Government has estimated a shift to CPI indexing of pensions would cost the typical pensioner £12,000.

The ONS said: “We agree the RPI has significant shortcomings. We will therefore continue to work closely with our counterparts in Government and at the Bank of England and respond to the committee.”